BUSFIN 4410 – Real-Estate Finance

Spring Semester, 2015-2016

Professor Itzhak (Zahi) Ben-David

Class Schedule

Tuesday and Thursday 3:55PM - 5:15PM

Schoenbaum Hall 215

Professor

Itzhak Ben-David

Office: 606A Fisher Hall

E-mail: bendavid@fisher.osu.edu

Web: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

Office Hours: by appointment

Teaching assistants:

Spencer Couts: couts.14@osu.edu

Course Description

This course provides a framework for analyzing individual real-estate transactions (both

commercial and residential) and real-estate assets as an asset class. We will cover three

topics in depth. First, we will examine several valuation techniques used in practice and

their underlying assumptions. These practices include cash flow discounting, cap rates,

and real-options. Second, we will discuss how real-estate assets are integrated in capital

markets through Real-Estate Investment Trusts (REITs), private equity, and the

securitization process. Third, we will discuss the role of the real-estate market in the

financial crisis of 2008.

Prerequisites

The only prerequisite is BUSFIN 3400 (Intro to Real Estate) or an equivalent (upon the

instructor’s approval). This is a quantitative class and you will need to have basic

knowledge of microeconomics, statistics and math. You will need a calculator that has a

xy function. A financial calculator is not required, but it can help you solve the problems

we study faster. In addition, you need a good command of Microsoft Excel in order to

write the case reports.

Course Materials

1. An online course packet, which contains reading material and cases. The packet is

available on https://cb.hbsp.harvard.edu/cbmp/access/43202313.

2. I will post slides and additional class material on the course web page on Carmen

https://carmen.osu.edu/

Evaluation

Grades in this course will be based on the following components:

1. 5 group case studies (5 x 8% = 40%)

2. 1 individual assignment (1 x 6.5%)

3. 9 individual pre-guest lecture (up to) one-page write-ups (9 x 0.5% = 4.5%)

4. Class Participation (9%)

5. Midterm exam (15%)

6. Final exam (25%)

The following are the primary principles for evaluation:

Grading is relative to the performance of your peers.

The grade distribution is not truncated. It is possible to earn any of the official

OSU grades in this course.

Please note that there will not be any make-up exams except as required by

university policy. If illness or an emergency should force you to miss an exam,

please contact me before the exam is given.

Group Cases

Group cases should be submitted by groups of up to 3 people (individual submissions are

OK). The instructions for the case will include grade breakdown. Please submit hard

copies only; email submissions are not acceptable. Note that we will discuss some of the

case studies in class, while others will remain as homework assignments only.

Individual Assignment

There will be one individual assignment towards week 27 (see schedule below).

Individual pre-guest lecture one-page write-ups

Our class heavily relies on the experience and expertise of industry leaders. In

preparation for each talk, all students must conduct a short research on the person coming

to class and his/her institution. In addition, each student will prepare three questions for

the speaker. The summary of the research and the three questions will be submitted on a

(up to) one-page summary through Carmen. (Carmen will verify that there is no

plagiarism). To remove any doubt, in your write-up you are not allowed to copy and

paste parts of vita of people from the internet.

To submit these assignments through Carmen please follow the instructions on the below

referenced website. Use Contents > Dropbox:

https://resourcecenter.odee.osu.edu/carmen/uploading-files-dropbox-students

Class Participation

Class participation is an important component of the grade. I will pass attendance sheets

in the class. Attendance in each class accounts for 1% of the participation grade (i.e., up

to 6 percentage points out of the 12 percentage points participation grade). The rest

participation grade will be determined according to the quality of classroom discussion.

Please remember to bring name plaques in order to receive participation credit.

Regrading Policy

All regrade requests must be made within one week of the day the exams or cases are

returned. Any exam submitted for regrading of a question is subject to a complete

regrade. As a result, the regraded score may increase, stay the same, or decrease. A

regrade form will be available for download on the course website. Note that I will not

consider any regrade request after the one week deadline has passed.

Academic Integrity

You have affirmed to adhere to the following honor statement:

As a member of the Fisher College of Business community, I am personally committed to

the highest standards of ethical behavior. Honesty and integrity are the foundation from

which I will measure my actions. I will hold myself accountable to adhere to these

standards. As a leader in the community and business environment, I will pledge to live

by these principles and celebrate those who share these ideals.

In addition, the University's Code of Academic Integrity is designed to ensure that the

principles of academic honesty and integrity are upheld. All students are expected to

adhere to this Code. Please visit the following website for more information on the

University's Code of Academic Integrity and possible sanctions:

http://oaa.osu.edu/procedures. In accordance with University Faculty Rule 3333-5-487,

all instances of academic misconduct will be reported to the Committee on Academic

Misconduct which recommends appropriate sanctions to the Office of Academic Affairs.

There will be no exception to this rule.

Tentative Course Calendar

Class

Number Date Topic & Readings Assignment Due

1 1/12

Classroom Discussion:

Lecture: Valuation techniques in real estate: replacement cost, sales

comparables, income (cap rate, DCF – pro forma analysis)

Pre-class Preparation:

READ: Financial analysis of real-estate property investments (Packet)

READ: DCF analysis (Carmen)

WATCH: https://www.youtube.com/watch?v=UwnVWZJp0B0

2 1/14

Classroom Discussion:

In-class case: Residences at Scarlet & Gray

Pre-class Preparation:

READ: Residences at Scarlet & Gray (Carmen)

Bring Laptops

3 1/19 Classroom Discussion:

Excel modeling (TA Session) Bring Laptops

4 1/21 Guest Lecturer:

Don Casto (Partner at Casto Inc.): “Deal structuring”

Guest Write-up

(Don Castro)

5 1/26 Classroom Discussion:

Case discussion: Angus Cartwright IV

Case Write-up

(Angus Cartwright IV)

6 1/28

Classroom Discussion:

Lecture: Leasing vs. owning: residential and commercial

Pre-class Preparation:

READ: Buy or lease: Commercial property decisions (Carmen)

READ: Lease vs buy: The corporate perspective (Carmen)

WATCH: https://www.youtube.com/watch?v=kwlWeijKUNo

7 2/2

Guest Lecturer:

Mark Wagenbrenner (CEO, Wagenbrenner Development): “The business

and finance aspects of real estate developments”

Guest Write-up

(Mark Wagenbrenner)

8 2/4 Classroom Discussion:

Behavioral Finance in real estate

9 2/9 Guest Lecturer:

Michael Levin (Partner - CORE Real Estate Capital): “Private equity”

Guest Write-up

(Michael Levin)

10 2/11 Classroom Discussion:

Case discussion: Wildcat Capital Investors

Case Write-up

(Wildcat Capital Investors)

11 2/16

Guest Lecturer:

Brett Kaufman (CEO, Kaufman Development): “Development and

Syndication in real estate transactions”

Guest Write-up

(Brett Kaufman)

12 2/18

Classroom Discussion:

Lecture: Using Monte Carlo simulation for credit risk modeling

Pre-class Preparation:

WATCH: https://www.youtube.com/watch?v=Q3rv3yF0bPA

WATCH: https://www.youtube.com/watch?v=VafCTQ0cvI0

WATCH: https://www.youtube.com/watch?v=UeGncSFijUM

WATCH: https://www.youtube.com/watch?v=XOA0_X5yJHQ

WATCH: https://www.youtube.com/user/ExcelIsFun

13 2/23 Classroom Discussion:

Lecture: Excel modeling (TA session)

14 2/25

Classroom Discussion:

Case discussion: Unlikely Outcome

Review class

Case Write-up

(Unlikely Outcome)

15 3/1 Midterm

16 3/3

Classroom Discussion:

Lecture: Financial options

Pre-class Preparation:

WATCH: Khan Academy – Options Video Playlist

https://www.youtube.com/playlist?list=PL55F11C99198EAE65

WATCH: American Call Options

https://www.youtube.com/watch?v=nnl3x1wo25g

WATCH: Basic Shorting

https://www.youtube.com/watch?v=jAOtWm_WZiE

WATCH: American Put Option

https://www.youtube.com/watch?v=6CUcgUeQS-w

WATCH: Call Option as Leverage

https://www.youtube.com/watch?v=N8h45mDI80s

WATCH: Put vs. Short and Leverage

https://www.youtube.com/watch?v=_q25hz5xLdk

WATCH: Call Payoff Diagram

https://www.youtube.com/watch?v=MZQxeQYQCUg

WATCH: Put Payoff Diagram

https://www.youtube.com/watch?v=VST_U297pH0

WATCH: Black-Scholes

https://www.youtube.com/watch?v=pr-u4LCFYEY

17 3/8

Classroom Discussion:

Lecture: Financial options + Real options

Pre-class Preparation:

READ: Introduction to Real Options (Packet)

READ: Ott: Real Options and Real Estate (Carmen)

WATCH: Real Options

https://www.youtube.com/watch?v=yegyVwgCE0M

https://www.youtube.com/watch?v=T1JKwzJ-KMc

https://www.youtube.com/watch?v=lwoCGAqv5RU

18 3/10

Guest Lecturer:

John Harper (President of Real Estate, Construction and Store Operations,

Macy's Inc.)

Guest Write-up

(John Harper)

19 3/22

Classroom Discussion:

In class case: CITIC Tower II: The Real Option (Packet)

Pre-class Preparation:

READ: CITIC Tower II: The Real Option (Packet)

20 3/24 Guest Lecturer:

Jordan Miller (CEO, Fifth Third Bank): “Commercial real estate lending”

Guest Write-up

(Jordan Miller)

21 3/29

Guest Lecturer:

Jay Long (Principal at The Townsend Group) “Anatomy of the financial

crisis”

Guest Write-up

(Jay Long)

22 3/31 Classroom Discussion:

Case discussion: The Right of Acquisition

Case Write-up

(The Right of Acquisition)

23 4/5

Guest Lecturer:

Joe Weisenburger (VP Senior Housing at Health Care REIT): “Real Estate

Investment Trusts (REITs)”

Pre-class Preparation:

READ: BofAML-REIT-Primer (Packet)

READ: FAQs about REITs (Packet)

WATCH: https://www.youtube.com/watch?v=yDl1_uLR5Os

Guest Write-up

(Joe Weisenburger)

24 4/7 Classroom Discussion:

REITs

25 4/12

Classroom Discussion:

Case discussion: H&R REIT

Lecture: Securitization / Real estate cycles / Financial crisis

Pre-class Preparation:

READ: What is securitization? (Packet)

READ: Asset Securitization (Packet)

WATCH: https://www.youtube.com/watch?v=oosYQHq2hwE

WATCH: https://www.youtube.com/watch?v=eYBlfxGIk28

Case Write-up

(H&R REIT)

26 4/14

Guest Lecturer:

Russ Nicholson (Director, Midwest Region, at STRS): “Institutional

investment in real estate”

Guest Write-up

(Russ Nicholson)

27 4/19

Classroom Discussion:

Lecture: Financial crisis

Lecture: Incentives in the real estate industry

WATCH: https://www.youtube.com/watch?v=mzJmTCYmo9g

WATCH: https://www.youtube.com/watch?v=EsA9lR2XB3A

Individual Assignment

28 4/21 Classroom Discussion:

Review class

29 5/2 Final Exam (Monday, May 2, 6:00pm-8:00pm) SB Hall 215